What is the Role of Government?

Since 1981, I have taught a graduate course called Public Management at Columbia University’s School of International and Public Affairs. I care a lot about what government does and how it does it, and I know that government has a reputation for mismanagement – some of it deserved and some not.

At the heart of the current health care debate there is discussion of the “public option”. This would be a government-run and subsidized health insurance program. This is the policy option that in some nightmarish visions of health reform would drive private health insurance providers out of business, raise our premiums, ration health care and “pull the plug on grandma.”

Obviously, there is a consensus that in America, we do not want government to be the sole provider of health services. As we continue to explore the issue of government’s proper role in our economy and in our communities, let’s remember two points: 1) Government has no monopoly on management incompetence and; 2) Government provides many services efficiently and effectively. Call 911 and the fire, police, and emergency services arrive in a hurry. Turn on your faucet and water comes out of the tap, or place your garbage in a bag by the street and a big white truck will come and take it away. These are the routine tasks of government, completed largely at the local level.

Let’s take a look at management in the private sector. According to the American Bankruptcy Institute (reported in the Kansas City Business Journal on August 25, 2009), “more than 30,000 businesses filed for bankruptcy protection in the first half of 2009, up 64 percent from the nearly 18,500 in the same period last year”. This means that even during a good year, over 35,000 American private businesses go under. Of course, sometimes they fail due to bad luck and market conditions. Not all bankruptcies are caused by incompetence, and not all incompetence leads to bankruptcy.

While government programs cannot go bankrupt, not all of them are as quick to respond as the FDNY. Consider the recent “Cash for Clunkers” program. While we may disagree on the value of the program (I thought it was a great idea), we can all agree that its administration was awful. The problem started with a substantial underestimation of the popularity of the program. Surprisingly, a one billion dollar budget lasted for about ten days instead of the expected ten weeks. In response, the federal government tripled the budget, but the managers of the program took several weeks to ramp up for a larger effort.

“The Transportation Department is tripling the number of workers handling reimbursement claims for the program, which started July 24 and exhausted its initial $1 billion in financing in a little more than a week. By week’s end, 1,100 people are scheduled to be reviewing the 13-page applications from buyers.”

Since over 435,000 cars were sold under the program, even with a larger staff, each person was assigned to review about 400 applications. If the staff had not been tripled in size each staff person would have had to review 1,200 of these 13 page documents. If we assume one person could review about two of these applications every hour for a total of 80 a week (a number I’ve picked out of thin air), it would have taken 15 weeks to authorize checks and who knows how much longer before dealers actually got paid.

A superbly well-managed operation would have had a contingency plan in place to deal with the possibility of high demand. Even a poorly managed organization could have done better than the Department of Transportation. Once the popularity of the program was established and the probability of extra funding seemed high, why didn’t DOT move quickly to expand their staffing? The Senate tripled the program’s budget on August 6th, so why did DOT wait two weeks to add more review staff? While the size of the application form can be blamed on the program requirements created by Congress, the inadequate number of review staff was entirely DOT’s fault. While I recognize the constraints that government managers must operate within, there is always a way around these obstacles if a manager is both creative and aggressive.

What does all of this mean? It means that the central issue is effective management, not socialized vs. private medicine. Bad management can take place in any organization – in government, in non-profits and in the private sector. But awful service need not last forever. I remember a visit to the Verizon Store shortly after they developed the mass consumer cell phone business. During that visit I was tortured by their bureaucracy for over three hours trying to arrange a family plan. I felt like I was in the old Soviet Union trying to buy a loaf of bread. Over the past year I’ve visited with Verizon a couple of times and was impressed by the efficient, friendly and even high-tech service. Competition and good management led to improved service.

As we approach the end game of the health care debate, we need to ensure that the system that emerges encourages both competition and good management. This does not preclude a public sector insurance provider, but it means that if we go that route we need to ensure that it does not evolve into a monopoly. We also need to consider the size and scale of the organizations that are developed to deliver health insurance. While organizations that are too small do not benefit from economies of scale, organizations that are too large can develop dysfunctional, slow-moving bureaucracies. You know them—organizations like the U.S. Department of Transportation, and the pre-2009 General Motors Corporation. My concern about the health care debate is its focus on ideological litmus tests. A better idea would be to pay attention to more pragmatic issues related to cost-effective service delivery and effective, innovative management.